A little about The Housing Affordability Index

You might have heard of the Housing Affordability Index (HAI) in passing, on the news, or in my case, on NPR when its brought up on my Monday commute to the Ferry. I always wondered what this meant, so wanted to learn more. Here is what it’s all about and what it means for Seattle compared to the rest of the country.

The Housing Affordability Index (HAI) is a metric that the National Association of REALTORS® uses to measure the relationship between median sales prices, interest rates, and median incomes. The Index was formed to determine whether or not a typical family earnings are enough to qualify for a mortgage loan on a typical home. These values are then tabulated and result in a numeric value – the HAI. The National Association of REALTORS® indicates that if the HAI returns a value of 100, a family making the median income has exactly the right amount of income (with no other factors analyzed) to qualify for a mortgage on a median-priced home. If the index returns a value over 100, then a family earning a median income has more than enough to qualify for a median priced home at the current interest rate.

Let’s compare October 2016’s numbers with October 2015’s:

  October 2015 October 2016 Change
Median Sales Price* $220,600 $233,700 +5.9%
Mortgage Rate** 4.05% 3.76% -7.2%
Corresponding Monthly Payment*** $848 $867 +2.2%
Median Family Income**** $68,956 $70,810 +2.7%
Housing Affordability Index 169.4 170.2 +4.7%

Interestingly enough, although home prices have increased 5.9% over the last year, the drop in interest rates and the rise in incomes was enough to offset this, resulting in a higher Housing Affordability Index rate than October of 2015. As prices and interest rates in-particular rise over the next year, I expect the Housing Affordability Index will adjust downward unless median incomes can rise and keep pace.

Looking at the different regions in our nation, the Midwest is most affordable with a median home price of $182,500, interest rates at 3.8%, and a median income of $70,796 (resulting in an HAI of 216.9) whereas the West is least affordable with a median home price of $348,800, interest rate of 3.72%, and a median income of $74,440 (resulting in an HAI of 120.4).

The Housing Affordability Index annualized rate was at its lowest point back in 1989. At that point it was 106.4 and the interest rates topped 10%.

Remember, when you buy a home with a fixed rate mortgage, the monthly payment (principal and interest) is a fixed amount. Salaries will increase in the coming years, but that principal and interest payment gets fixed in time.

If you are thinking about buying or upgrading your home in the next year, housing affordability may be a top-of-mind topic for you. Questions? Give me a call or text: (206) 762-0682 or email sarahgc@windermere.com.

*National Median Existing Home Resale Price as compiled by the National Association of REALTORS®

** Reported by the Federal Housing Finance Board and includes amortization of initial fees and charges

***Assumes a down payment of 20% of the home price

****As measured by The Census Bureau. Assumes the monthly principal and interest cannot exceed 25% of the median family monthly income.

 

Source: https://www.nar.realtor/topics/housing-affordability-index/background

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